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Post by buggerthebanks on Jul 16, 2014 20:21:45 GMT
To explain, I am concerned about the prospects of a "bank bail-in" (a la Cyprus) but want to keep some money on deposit (in the classical sense). I figured that a financial institution that doesn't print its own debt would be more robust (liquidity-wise) & less likely to require a bail-in. So, do the building societies operate differently from the mainstream banks?
I'll admit to being paranoid about this matter, but what's the perception of other members? In short:-
1) What do members think is the likelihood of it happening, &...
2) If I can ask you to assume that it will happen, how would you mitigate the risk?
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Post by GSV3MIaC on Jul 16, 2014 21:15:41 GMT
AIUI it's the government of the country that does this, not the bank/Bsoc .. if the government decides to do it, the only safe bet is to have your money in some other currency / country (and maybe not even that will help). I rate the chances as low .. it's much easier (less squawking) to nibble the debt through inflation, as long as someone is willing to keep lending, although taking a slice of everyone's savings is rather quicker. At the end of the say if the government wants your money they'll get it (and after all, their debt is really your debt .. they don't have any money except what they can relieve you of).
If you can tell the difference between the C&G B/soc or Birminham Midshires, and Lloyds / Barclays banks, you are a better man than me, Gunga-din. Oh wait .. they have different sort codes!
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Post by batchoy on Jul 17, 2014 6:59:41 GMT
If you can tell the difference between the C&G B/soc or Birminham Midshires, and Lloyds / Barclays banks, you are a better man than me, Gunga-din. Oh wait .. they have different sort codes! Bad examples, C&G and BM are banks and have been for many years, for C&G read Lloyds and BM read BoS.
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Post by GSV3MIaC on Jul 17, 2014 8:06:34 GMT
You missed my point which was exactly that.
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pikestaff
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Post by pikestaff on Jul 17, 2014 8:23:02 GMT
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jimbo
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Post by jimbo on Jul 17, 2014 10:29:57 GMT
The risk of a bail-in causes me some concern. When governments get desperate, it's game on for legalised theft. However, I think the risk of ongoing currency debasement via QE or whatever it ends up being replaced with are greater in the UK. If I lived in a Eurozone Country, I'd be far more concerned about a bail-in!
£85k of devalued Sterling as compensation really wouldn't appeal to me in such a situation. For me, the only solution is to diversify into foreign currency and overseas bank accounts, in addition to certain portable hard assets that Central Banks can't print when their backs are well and truly to the wall. All this comes with its own set of risks, but being physically geographically diversified is what the Rothschilds have been doing for centuries and it's served them well. Certainly helps protect from capital controls and single country risk.
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Post by jevans4949 on Jul 18, 2014 9:57:54 GMT
The main risk with building societies is a collapse in property prices following a period of over-generous lending.
One of the problems with Northern Rock (which by then was not a building society, although housing was still a big part of its business) was heavy lending on commercial property, the value of which then dropped by around a half.
Before the recession some lenders were offering 120% mortgages on buy-to-let flats, which once the recession set in were found to be over-valued.
In the aftermath, most lenders delayed in foreclosing on "negative equity" loans to avoid crystallising the bad debt / losses.
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Post by GSV3MIaC on Jul 18, 2014 10:25:23 GMT
But as we discovered, the compensation scheme underpins that risk (in many cases even above the 85k legal limit) AS LONG AS government has money to carry it off. As Jimbo said, the real issue is government debt (money they spent on our behalf, usually without asking us first, often to buy votes and curry favour), and when their supply of funding dries up (see Greece, Cyprus, Argentina, and many others over the years) out comes the printing presses, begging bowls, bail-ins, haircuts, or whatever else they can think of to save their skins and keep their fixes coming.
Long term, this country (and most of the others) need to learn to not spend what they haven't got, at least not on a regular basis (I may make exceptions for the odd war, plague, or massive recession). Yes, it's nice to have a social support system, but maybe it can't afford cars, plasma TVs, multiple holidays a year, and infinite healthcare for all. Ditto infrastructure .. we somehow managed to get canals, railroads, roads, sewers, etc. etc without the government beggaring everyone .. so what are we now doing wrong?
But back to the original question .. I don't expect a bail-in in the UK .. salami sliced to death, stealth devaluation, more taxation (maybe even on the Amazons and Googles of this world) .. yep, for sure.
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Post by yorkshireman on Jul 18, 2014 11:57:09 GMT
Ditto infrastructure .. we somehow managed to get canals, railroads, roads, sewers, etc. etc without the government beggaring everyone .. so what are we now doing wrong? They were built at the time we were the workshop of the world and paid for them by actually making and exporting things rather than being a consumer lead economy depending on manufactured imports.
My career has been in manufacturing and I have seen a catastrophic decline in that sector whilst at the same time the welfare state has grown into an uncontrollable monster without real money being made to pay for it.
That’s the basic problem in a nutshell, no government is going to turn that round in 20 years let alone the life of one parliament.
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Post by davee39 on Jul 18, 2014 21:45:51 GMT
Victorian infrastructure was financed by speculative debt (Public bond issues). These were trade-able and large profits and losses were made as part of the financing. Unfortunately YM's bête noire (The City Boys) along with Government and the banks ensure that the general public can no longer get involved in such deals. It would take a degree of intelligence lacking among our political leaders to open up infrastructure finance. Instead of issuing bonds to the general public paying 5 or 6% they would rather pay 12% to French Government owned energy companies or their financial backers.
Manufacturing (in the North) has been abandoned because one political class never cared about the region or its problems, and the other lot never cared either because they took its support for granted, and aspired to ape the wealthy. And a country which gave away its manufacturing now finds the cupboard is bare when it tries to pay its way.
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Post by buggerthebanks on Jul 19, 2014 11:57:38 GMT
Thanks to all for your replies. I remain concerned but having read all of your responses I'll admit my focus has shifted slightly.
Regarding the FSCS, I do wonder if this would come into play if we were ever faced with a bail-in. The FSCS only applies in the event that a bank fails. A bail-in (it could be argued) would circumvent that by preventing a failure, so the FSCS guarantee is never actually triggered. Splitting hairs, I know, but if we ever get to that stage we'd all have bigger fish to fry than to wrangle over the wording / meaning / implication of a woefully underfunded "guarantee".
I think I'll look to move my cash ISAs to a couple of carefully researched building societies (they're currently with mainstream banks). I'd definitely feel more comfortable about that (assuming I don't take a large reduction on the interest rate in the process), & I continue to buy the dips in the gold market. This is a relatively new asset class for me & only accounts for 4% of my portfolio ("portfolio"! I'm a comparatively small player here), but I view it as an insurance policy.
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james
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Post by james on Jul 22, 2014 6:37:47 GMT
In the case of a systemically important financial institution the FSCS wouldn't be used. These institutions have to operate in at least two parts, the operating units that take deposits and the parent company that does the borrowing and such. In a resolution event what happens is that the parent company shareholders lose as much of their money as it takes to make the company solvent. If that is not enough the owners of corporate bonds take a cut in the value of their investments. For consumers that means losses in the value of their investments that happen to be invested in the parent company or its bonds, with no FSCS protection available for that. Meanwhile the operating companies are transferred to a new parent and continue to operate. The initial parts of all of this would happen over a weekend or after a deliberate losing of markets or suspension of trading in relevant shares.
This process is relatively recent formalisation of things that the law didn't fully provide for in 2008. That foundation is now in place.
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Post by Ton ⓉⓞⓃ on Aug 28, 2014 10:36:25 GMT
Thanks for the link, am I right in reading that they have issued ~£28 billion of debt? (On page182, line; 'Debt securities in issue')
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pikestaff
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Post by pikestaff on Aug 28, 2014 14:17:55 GMT
More than that actually. Debt securities are the biggest item but there are also bank deposits and other fancy classes of debt and almost-debt (subordinated liabilities, subscribed capital, core capital deferred shares, other equity instruments). Depending on how you choose to measure it, total debt is somewhere between £35bn and £40bn (roughly).
This is nothing to worry about. Nationwide has total assets of just under £190bn. Most of this is loans to customers (mainly mortgages). Those assets are funded mainly by customer deposits in the form of "shares" (being deposits with membership rights) £130bn and "other deposits" £7bn but also partly through reserves and debt.
These figures do, of course, show how small p2x is by comparison. There is a lot to go for!
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Post by badger on Aug 28, 2014 22:06:47 GMT
AIUI, virtually all the "money" we use is actually bank credit - private banks create money when they make loans. For every pound in your bank account, someone else must have a pound of debt.
For an explanation of how it works, have a look at the Positive Money website www.positivemoney.org/ and drill down to the "how money works" link. The idea that banks act as middle men, lending out money that savers have deposited, is a myth.
So, the answer is that any organisation that has a banking license creates debt, and I am fairly certain that includes Building Societies. The only saving institutions that don't create debt are Credit Unions, which are only allowed to lend out money which has already been saved.
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